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Prime Benchmark, July 2018

17 August 2018

In local terms, prime office rental markets in most cities rose slightly over the first half of the year and many are now in an early up-cycle. The markets moved by between -1.4% (Jakarta) and 7.3% (Osaka). Because of tightening supply in Osaka with a vacancy rate below 3%, prime buildings in this market saw higher rental growth than the average. Hong Kong remains easily the most expensive prime office market in the region 86% ahead of its nearest rival, Tokyo (C5W).

APAC economic growth continued to picked-up moderately in 2H/2017 and the International Monetary Fund estimates that the “Emerging and Developing Asia” economies grew by 6.5% over the year as a whole while China grew by 6.8% and Japan’s economy grew by 1.8% in 2017 from 0.9% in 2016. The improving global economic outlook and an accommodative monetary policy created momentum for business expansion.

The US dollar depreciated against most Asian currencies by between 0.6% and 6.8% during the first half of 2017. This is reflected in the rental values of income-producing assets in Asia which have become relatively more costly in US dollar terms.

In December 2016, the Federal Reserve Bank raised the benchmark rate by a quarter-point from 0.5% to 0.75% for the second time since the financial crisis. The action was in response to a stronger US economy and higher inflation expectations. The market generally expects the US dollar to strengthen as a result, with implications for dollar denominated accommodation costs in the region.

The global economy continued to make a slow recovery during 1H/2016 while external demand remained challenging. Maintaining adequate liquidity and a relaxed credit environment were the main themes in many Asian countries. However, political events such as the Brexit vote and the US Presidential election are adding some uncertainty to global economic growth and The Fed is likely to be more wary of hiking rates in the near term. Except for China, which saw a depreciation trend, most Asian